How to Avoid Becoming a Biotech Zombie, Part 3

Avoiding becoming one of the industry's zombies—a company that is neither alive nor dead—requires not only establishing critical organizational systems, the subject of a previous installment in this series, but also making sure that the day-to-day processes that implement those systems contribute to the overall success of the enterprise. Doing so requires a system of business models that focuses strategy and keeps daily performance on track toward fulfilling that strategy.

FOCUS: TWO SUCCESSFUL BUSINESS MODELS

Focus means knowing what you are good at and sticking to it. There are many biotech business models, but two proven models—the idea-generation factory and the fully integrated company—stand out. These present such different implementation challenges that they illustrate the imperative need for a comprehensive system for mapping strategy onto implementation and the perils of foregoing focus to pursue hybrid business models. What many biotechs fail to see is that while you may easily imagine similarities between the two models, implementing a successful blend is extremely difficult, if not impossible. Each entails a different strategy, different implementations, different risks, and different rewards.

The Idea Factory

The idea factory aims to generate breakthrough therapeutic products, devices, processes, or technology; develop them to a point at which the company can profitably out-license them; and repeat that cycle to grow an annuity stream of royalty payments. Such a strategy requires the agility to continually generate enough new, saleable, and clinically promising ideas to keep the company in business.

Quick Recap

Because these operations require fewer resources than those needed to develop the idea into a full commercial product, the risks are lower and so are the rewards. The idea factory need only produce products that show promise, not take them all the way to regulatory approval and use in humans, which is a much longer path that requires far different capabilities and greater financial resources. The idea factory does a wonderful thing: it generates a continual stream of ideas developed up to Phase 1 or 2 clinical trials, making it possible for other companies with other capabilities to eventually bring those products to market. If the idea factory stops to bring one of its own ideas to market, then the ongoing stream of ideas will likely slow down or even dry up completely because the focus has changed. Fully developing and commercializing ideas requires a fully integrated firm.

The Fully Integrated Company

To take products all the way from initial discovery and development to full commercialization and the market, the fully integrated company needs to make larger investments of financial, human, and infrastructure resources—investments that may never pay off. For example, generally accepted estimates put the probability of an investigational new drug (IND) reaching the market at about 10–15%. The challenge for such companies is to make sure that they have enough potential products in the laboratory and the clinic, and they almost can't get enough to sustain the risk that other products may fail. Certainly, the risks are greater for fully integrated firms, but so are the rewards in the form of the substantial revenue and profits of a commercially successful product.

Success with either of these strategies begins with having a clear idea of precisely which you are pursuing so you can focus the entire company on it. Surprisingly, some companies fail to achieve such clarity at the outset—or, just as importantly, to maintain it throughout. As a result, they drift into a hybrid implementation that is neither one nor the other.

For example, a natural idea generator may become enamored of the potential of one of its ideas and, tantalized by the financial possibilities of full commercialization, it may drift into creating processes and building infrastructure that is more appropriate for a fully integrated company. The impetus to change direction may come from senior executives, boards of directors, or even early investors who want a greater return on their investment, thus allowing greed to overcome the company's driving strategy. Conversely, an integrated company might decide that greater profits depend on seeking innovative new ideas solely within its own four walls and may therefore invest in its own exclusive idea factory. Either lapse recalls the difference between those who have vision and those who see visions.